Category Archives: Mexican real estate ownership

A new international real estate scandal that will inevitably affect Puerto Peñasco is coming. The owners of “Tessoro At Las Conchas” condominiums, who bought the property in which the property’s developers have produced a series of failures and a string of abuses since the project began, now face the unbearable cut-off of power to the building for nonpayment because of non-payment of maintenance fees.

This event, which happened last week, has caused them serious trouble, because the property lacks power to operate the elevator, and one of the owners lives on the eighth floor, and the woman is disabled. Then water service stopped because the pump does not work without electricity, which is also indispensable for other domestic uses.

The plaintiffs are Richard and Linda Chamberlain, originally from Tucson, who bought a 2,200 square foot condominium for $530,000 four years ago. Another is Doug Matthews, a resident of Phoenix, who purchased a 3,100 square foot condo 6 years ago for $1 million.

There are a total of 13 condo owners — one of which is Mexican — who say they cannot pay the homeowners maintenance fees on the 55 condominium units of their condo tower, of which only 13 were sold. The project was planned for four towers of 14-stories, but was stopped after the first tower was completed when expected sales did not occur.

Tessoro At Las Conchas

These complaints have not been enough to stop the active marketing of the condos. Here is a link to the website.

[Fulano’s comment: This problem Mexican property is a little different from the usual. The developer actually completed and delivered the 13 condo’s that were sold. The problem is that nobody thought about what would happen if all the condo’s did not sell. In a standard condominium project in the US, the developer would be responsible for funding any deficits in the homeowners association until a substantial number of units are sold. There would also be rules, in most cases, that each unit could not be assessed for more than its pro rata share of expenses. Also in the US, a homeowners association can enforce payment of dues by placing a lien on a non-paying members condo, and even foreclosing on it. Not in Mexico.

While not mentioned in the article, there has to be more problems for the condo owners. The employees of the HOA have to be paid and their social security taxes deposited. The government of Mexico is very serious about that. In that salt water environment, the building will disintegrate in a matter of a few years without maintenance.]

As if U.S. taxpayers with foreign accounts and assets did not already have enough cause for confusion regarding the Internal Revenue Service (IRS) filing requirements, as covered by Fulano, it just got worse. Much worse.

As discussed in Fulano’s blog linked above, the IRS has determined that a fideicomiso, which is the instrument through which Americans hold title to Mexican real estate in the prohibited zone, is a foreign trust. In fact, the IRS says it is a foreign grantor trust. The Foreign Account Tax Compliance Act (FATCA) was passed on March 18, 2010 and its provisions generally become effective for tax years beginning after that date. For most taxpayers, that means it goes into effect on January 1, 2011.

In its never-ending quest to find taxable income that may be hidden outside the United States, FATCA brings in some new tax regulations. One of those new regulations says the fair market value of foreign property occupied by the grantor or beneficiary of a fideicomiso — or a close relative — is now taxable income. This comes into play for Americans who live in Mexico on property they own with a fideicomiso. If one does not have a fideicomiso, FATCA does not apply. Here are some examples:

1. An American taxpayer owns a home Cuernavaca, Mexico and lives there full time. Cuernavaca is not in the “prohibited zone” so ownership is not through a fideicomiso. The taxpayer has nothing to report to the IRS on account of his ownership of the home.

2. An American taxpayer rents a home in Rosarito, Baja California and lives there full time. Renting a home is not ownership in the prohibited zone and Mexico does not require the taxpayer to have a fideicomisio. The taxpayer has nothing to report to the IRS on account of his renting home.

3. An American taxpayer owns a a home in Rosarito, Baja California on land he leases from a Mexican and lives there full time. Owning a home on leased land is not ownership that requires a fideicomiso, and Mexico does not require the taxpayer to have a fideicomisio. The taxpayer has nothing to report to the IRS on account of his owning the home and leasing the land.

4. An American taxpayer owns a a home or condominium in Rosarito, Baja California and lives there full time. Being in the prohibited zone, he has a fideicomiso. Looking at the numerous advertisements to rent these homes to Americans on vacation, as they appear in Craigslist and Baja real estate agents websites, that taxpayer’s home or condominium has a fair market rental rate of $175 per day. Under FATCA, the taxpayer should report $63,875 of taxable income to the IRS, commencing in 2011. Individual tax rates in 2011 vary from 15% to 39.6%, so this could create an additional federal income tax liability of $9,580 to as much as $25,300, in the example.

Fulano did a survey of most of the Baja California real estate agents’ websites. There was not even one mention of this new FATCA tax. This is not surprising, as there is not even one mention of the requirement to file IRS Forms 3520 and 3520A, which has been an IRS requirement for years.